AOT – ST negative impact, but LT uptrend intact

THAI’s operational disruption and recent flooding have raised concerns over AOT, driving the stock down 4% since last Friday. However, we believe the impact will be limited, supported by AOT’s diversified traffic base and the temporary nature of THAI’s capacity cuts. While flooding may weigh on tourism demand in the near term, the impact should remain manageable. We expect earnings growth to resume in 4QFY26 and accelerate in FY2027, driven by the international departure PSC hike and a recovery in travel demand. We view the recent share price weakness as an attractive entry point and maintain our OUTPERFORM rating with a mid-2027 DCF-based TP of Bt72.

The impact of THAI’s recent capacity reduction is likely to be limited. Due to labor shortages caused by flooding in Bangkok, THAI has faced operational issues related to baggage handling and cargo services, prompting the airline to reduce capacity by 30-40% from September 29. The temporary capacity reduction is intended to clear the baggage backlog within 72 hours, with operations expected to return to normal within seven days. Investor concerns have emerged regarding the potential impact on AOT’s operations. However, our analysis suggests the effect should be minimal. International passenger traffic is the key driver of AOT’s revenue and earnings. Using origin-and-destination passenger traffic data, rather than passenger nationality, to assess the impact of THAI’s flight frequency reductions, we find that: (1) while THAI is the largest international carrier at AOT airports, it accounts for 16.5% of total international passengers (8M26), highlighting AOT’s diversified traffic base; (2) key source markets such as China are largely unaffected as THAI does not hold a dominant market share, while capacity reductions in strategic markets for both AOT and THAI, particularly India and Japan, remain relatively modest and (3) we continue to monitor capacity reductions on European routes, although the impact on AOT should be contained as Europe represents 12% of its total international passenger traffic. Based on THAI’s management guidance indicating a 30% capacity reduction for seven days, we estimate only a 0.1% downside to AOT’s FY2027 international passenger forecast of 80.2mn passengers and a 0.2% impact on FY2027 earnings.

Short-term impact from flooding remains manageable. Recent flooding has not caused damage to airport operations but could temporarily affect inbound tourism demand as some international travelers postpone trips to Thailand. Nevertheless, we expect demand to be deferred by only one to two weeks before normalizing. In addition, several high-season events should help support demand, including the IMF-World Bank Group Annual Meetings (October 12-18) and Tomorrowland Thailand (December 11-13). Our sensitivity analysis suggests that if AOT’s international passenger traffic growth in October slows to -5% to 0% YoY, compared with our base-case assumption of +5% YoY growth, FY2027 earnings would decline by 0.6-1.3%, implying limited downside risk.

Earnings uptrend to resume in 4QFY26 and FY2027. We maintain our view that AOT’s earnings growth trajectory will resume in 4QFY26 (July-September 2026), supported by structural earnings growth from the international departure Passenger Service Charge (PSC) increase. The full-year benefit from the PSC hike is expected to drive FY2027 core earnings growth of 57% YoY. We maintain our mid-2027 DCF-based TP of Bt72, using a WACC of 8.0% and LT growth rate of 2.0%.

Risks. Global economic slowdown cutting travel demand. ESG risks are environmental issues (E) and social issues such as safety (S).